A Firm Produces Output at Two Plants That Are at Different

question 26

Essay

A firm produces output at two plants that are at different locations but are otherwise identical.The firm's cost function is C(q)= 5.3√q,where q is the quantity produced at the plant.To satisfy demand at the current market price,the firm needs to produce a total of 202,500 units of output.How should the firm divide production between the two plants in order to minimize the cost of production? Is it more profitable to produce all 202,500 units at the same plant?

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Definitions:

Cost Function

A mathematical formula that describes how production costs change at different output levels.

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A tax that is a fixed amount, no matter the change in circumstance of the taxed entity, not affected by the taxpayer's income or activity level.